Archive for January, 2010

Is The Dow Jones Utility Index Telling Us Something?

Posted in Dow Jones Utility Index (DJU) on January 17th, 2010 by admin – Be the first to comment

Utility prices are sometimes seen collectively as a barometer of the direction of interest rates since utility companies are big borrowers of debt. If interest rates decline, their costs decline which becomes a big plus for utility stock prices. As a result of this relationship, utility prices are often seen as a leading indicator of equity prices in general.

With that in mind, it is worth noting that the Dow Jones Utility Index (DJU) has seemingly found key resistance at the 408.50 level (where key “cross” trend line sits) after having rallied from the 288.66 March 2008 low. With overbought technical readings on weekly charts now present, and with growing expectations of a rise in interest rates finding some traction, such a stall in the DJU Index is understandable.

A downturn in utility stock prices, if it occurs, would likely mute the bullish tone for both the Dow Jones Industrial index and the S&P 500 Index if the 408.50 continues to hold as key resistance. On the other hand, a solid break above 408.50, if it occurs, would be very positive for equity prices, particularly if the financial sector follows through to the upside. It would also suggest that recent expectations for a rise in interest rates may be misplaced.
For the time being, however, bullish sentiments for equity prices will likely be put on hold until a solid break above the 408.50 resistance area on the DJU index occurs.

Jim Donnelly, Olson Global Markets


The KBW Bank Index Could Lead The S&P 500 And The DJIA Higher

Posted in Keefe Bruyette & Woods U.S. Bank Index (BKX) on January 10th, 2010 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

As we observed early in December, a bullish reverse Head & Shoulders pattern appears to be developing on the Keefe, Bruyette & Woods U.S. Bank Index (BKX). At this point in time, it is getting ever closer to a test, and potential break above key “neckline” resistance at the 48.50 level. If a “breakout” does occur, it is important to note that the “objective” of this pattern is for a solid rally up toward the 79.50 area, which is a nearly 70% jump from Friday’s close of 47.

Such a move, if it occurs, would have a powerful impact on the direction of the S&P 500 Index and the Dow Jones Industrial Average; as well as improving market psychology and most likely credit conditions all at the same time. It would also suggest that while the yield curve could steepen, which would greatly help potential bank earnings, underlying asset conditions could be finding their footing.

Much consternation has developed over the actual market value the assets that the Federal Reverse has purchased from banks. Investors are equally troubled by the size and scope of the risk that Fannie Mae, Freddie Mac and FHA have on their respective balance sheets. Nevertheless, a solid rally in the BKX from current levels would have bullish implications for the banking system and overall economy, which would be welcomed by both Wall Street and Main Street alike.